Foreign Cash Streaming Back To China After Alibaba's Plans

Foreign investors are steadily pouring into China in response to Alibaba's restructuring plans, which money managers see as the latest sign that the national leadership is becoming friendlier to business as economic growth gains traction.

Since Alibaba announced its intention to split up and float its business units last week, exchange data shows net foreign buying of mainland-listed stocks every day, for a record quarterly total.

Investors have turned positive on the company, and the stock is up this year after falling precipitously in 2021 and 2022.

The flow could indicate a shift in sentiment among foreign investors, who have been conspicuously absent as China's markets and economy have roared back to life since Beijing abruptly lifted its stringent zero-COVID policy in December.

The MSCI China index (.dMICN00000PUS) gained 4.5% in March, compared to 2.8% for global stocks (.MIWD00000PUS), and the Shanghai Composite (.SSEC) has just finished its best quarter in more than two years, with a 5.9% gain.

Derrick Irwin, portfolio manager at US asset manager Allspring Global Investments, believes the Alibaba breakup and founder Jack Ma's return to China are part of the government's effort to reach out to entrepreneurs.

"This may rekindle private-sector investment," he said.

Since late 2020, China has waged a crackdown on a wide range of industries, leaving both startups and the country's largest corporations operating in an uncertain environment. It penalised tech companies for monopolistic behaviour, among other things, by levying large fines on e-commerce companies such as Alibaba.

According to Rob Brewis, portfolio manager at UK-based asset manager Aubrey Capital Management Ltd, the firm has returned to Chinese equities this year, primarily due to economic recovery hopes and low valuations.

Because the company and its billionaire founder were high-profile targets during the crackdown, investors believe Alibaba's plans herald a new era of growth and capital raising for the company.

The cancellation of Ma's Ant Financial's $37 billion public listing in November 2020 at the eleventh hour ushered in a period of unpredictable government and regulatory scrutiny, sending Alibaba stock down 80% in two years to last October.

The announcement last week comes on the heels of positive comments from authorities. Premier Li Qiang assured foreign investors that China would remain steadfast in its commitment to reform and opening up, increasing market access and improving the business environment.

As many as 67% of investors in the United States are now seeing the start of a trend towards more business friendly actions from Beijing, a recent survey by BofA Securities found, according to a note seen by Reuters and a source familiar with the matter. BofA Securities declined to comment.

Ernest Yeung, a portfolio manager at U.S. asset manager T. Rowe Price, anticipated "a gradual process of stabilisation" of private enterprises and the internet sector.

His team has been focusing on investing in "forgotten or out-of-favour" stocks, and built a position in Alibaba last year.

The lingering question is how China reconciles its commitment to business with its political ideology.

Investors will watch "whether this is like Mao's 'Let a hundred flowers bloom' campaign that will just be reversed if it doesn't serve the interests of the Party," said Brian Jacobsen, senior investment strategist with Allspring.